Tinbergen Institute Finance Lectures 2010

Darrell Duffie
6-8 September 2010

Darrell Duffie, Dean Witter Distinguished Professor of Finance at The Graduate School of Business, Stanford University, has given the Tinbergen Institute Finance Lectures 2010.

Darrell Duffie is considered one of the most influential researchers in his field. His interests include over-the-counter markets, financial risk management, credit risk, valuation of defaultable securities, valuation and hedging of derivative securities, term structure of interest rate modeling, financial innovation, and security design.

Recently, Duffie has focused on how capital moves from one segment of asset markets to another, and the implications of imperfect trading opportunities for asset price behavior, especially in over-the-counter markets. Duffie and several collaborators have some recent results on portfolio credit risk, based on the assumption that there are unobservable common default-risk factors.

Lecture Title: Dark Markets

Over-the-counter markets are relatively opaque. Investors in these markets frequently search for suitable counterparties and may be unaware of the prices at which trades are being conducted elsewhere in the market. Dealers and other relatively connected market participants have informational advantages and superior access to trading opportunities. Price behavior and asset allocations reflect the market opaqueness. The lectures began with an overview of the architecture of over-the-counter markets and policy issues confronting their design and regulation in the wake of the recent financial crisis. The lectures then combined empirical evidence from various markets with new theoretical frameworks in order to shed light on the implications of market opaqueness for price behavior, allocations, and information transmission. Search-based models of information percolation, market segmentation, and price negotiation formed the center of the story.